e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FORM 10-Q
For Quarter Ended April 30, 2007
Commission File Number 1-8777
VIRCO MFG. CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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95-1613718 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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2027 Harpers Way, Torrance, CA
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90501 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (310) 533-0474
No change
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (check one):
Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding for each of the registrants classes of common stock, as of
the latest practicable date:
Common Stock, $.01 par value 14,379,506 shares as of May 30, 2007.
VIRCO MFG. CORPORATION
INDEX
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Exhibit 4.1 Amendment to Stockholders Rights Plan |
Exhibit 31.1 Certification of Robert A. Virtue, President, pursuant to Rules 13a-14 and
15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. |
Exhibit 31.2 Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules
13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. |
Exhibit 32.1 Certification of Principal Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
EXHIBIT 4.1 |
EXHIBIT 31.1 |
EXHIBIT 31.2 |
EXHIBIT 32.1 |
2
PART I
Item 1. Financial Statements
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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4/30/2007 |
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1/31/2007 |
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4/30/2006 |
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(In thousands, except share data) |
Assets |
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Current assets |
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Cash |
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$ |
1,523 |
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$ |
1,892 |
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$ |
752 |
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Trade accounts receivable |
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14,133 |
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18,796 |
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18,247 |
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Less allowance for doubtful accounts |
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208 |
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200 |
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234 |
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Net trade accounts receivable |
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13,925 |
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18,596 |
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18,013 |
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Other receivables |
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85 |
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228 |
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224 |
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Inventories |
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Finished goods, net |
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20,443 |
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11,651 |
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19,641 |
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Work in process, net |
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25,376 |
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19,690 |
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22,816 |
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Raw materials and supplies, net |
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7,031 |
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6,496 |
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9,194 |
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52,850 |
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37,837 |
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51,651 |
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Prepaid expenses and other current assets |
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1,767 |
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1,479 |
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1,041 |
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Total current assets |
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70,150 |
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60,032 |
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71,681 |
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Property, plant and equipment: |
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Land and land improvements |
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3,596 |
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3,596 |
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3,591 |
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Buildings and building improvements |
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49,555 |
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49,555 |
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49,581 |
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Machinery and equipment |
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110,607 |
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109,730 |
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106,981 |
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Leasehold improvements |
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1,338 |
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1,323 |
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1,302 |
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165,096 |
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164,204 |
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161,455 |
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Less accumulated depreciation and amortization |
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117,728 |
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116,116 |
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111,374 |
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Net property, plant and equipment |
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47,368 |
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48,088 |
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50,081 |
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Goodwill and other intangible assets, net |
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2,308 |
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2,311 |
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2,323 |
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Other assets |
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5,846 |
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5,846 |
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8,727 |
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Total assets |
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$ |
125,672 |
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$ |
116,277 |
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$ |
132,812 |
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See Notes to Condensed Consolidated Financial Statements.
3
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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4/30/2007 |
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1/31/2007 |
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4/30/2006 |
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(In thousands, except share data) |
Liabilities |
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Current liabilities |
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Checks released but not yet cleared bank |
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$ |
1,664 |
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$ |
2,563 |
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$ |
2,276 |
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Accounts payable |
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13,414 |
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14,463 |
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23,474 |
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Accrued compensation and employee benefits |
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5,860 |
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8,094 |
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5,063 |
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Current portion of long-term debt |
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5,074 |
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5,074 |
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5,012 |
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Other accrued liabilities |
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6,367 |
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6,844 |
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5,974 |
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Total current liabilities |
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32,379 |
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37,038 |
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41,799 |
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Non-current liabilities |
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Accrued self-insurance retention and other |
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4,911 |
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3,962 |
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3,104 |
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Accrued pension expenses |
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16,248 |
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15,949 |
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15,024 |
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Long-term debt, less current portion |
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25,866 |
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10,190 |
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36,511 |
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Total non-current liabilities |
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47,025 |
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30,101 |
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54,639 |
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Deferred income taxes, net |
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260 |
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260 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock |
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Authorized 3,000,000 shares, $.01 par
value; none issued or outstanding |
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Common stock |
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Authorized 25,000,000 shares, $.01 par
value; issued 14,379,506 shares at
4/30/2007 and 1/31/2007, and 13,137,288
shares at 4/30/2006 |
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143 |
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143 |
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131 |
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Additional paid-in capital |
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113,847 |
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113,737 |
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108,684 |
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Accumulated deficit |
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(60,416 |
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(57,436 |
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(68,248 |
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Accumulated comprehensive loss |
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(7,566 |
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(7,566 |
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(4,193 |
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Total stockholders equity |
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46,008 |
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48,878 |
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36,374 |
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Total liabilities and stockholders equity |
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$ |
125,672 |
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$ |
116,277 |
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$ |
132,812 |
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See Condensed Consolidated Financial Statements.
4
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (Note 1)
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Three months ended |
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4/30/2007 |
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4/30/2006 |
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(In thousands, except share data) |
Net sales |
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$ |
31,122 |
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$ |
34,515 |
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Costs of goods sold |
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19,572 |
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23,021 |
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Gross profit |
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11,550 |
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11,494 |
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Selling, general and administrative expenses and other |
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13,986 |
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13,875 |
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Interest expense |
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544 |
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886 |
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Loss before income taxes |
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(2,980 |
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(3,267 |
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Provision for income taxes |
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Net loss |
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$ |
(2,980 |
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$ |
(3,267 |
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Net loss per common share |
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Basic |
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$ |
(0.21 |
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$ |
(0.25 |
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Weighted average shares outstanding |
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Basic |
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14,380 |
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13,137 |
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See Notes to Condensed Consolidated Financial Statements.
5
VIRCO MFG. VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (Note 1)
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Three months ended |
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4/30/2007 |
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4/30/2006 |
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(In thousands) |
Operating activities |
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Net loss |
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$ |
(2,980 |
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$ |
(3,267 |
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Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization |
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1,730 |
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1,861 |
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Provision for doubtful accounts |
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8 |
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25 |
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Gain on sale of property, plant and equipment |
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(17 |
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Stock based compensation |
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110 |
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294 |
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Changes in operating assets and liabilities |
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Trade accounts receivable |
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4,663 |
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(768 |
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Other receivables |
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143 |
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153 |
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Inventories |
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(15,013 |
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(20,034 |
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Income taxes |
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2 |
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10 |
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Prepaid expenses and other current assets |
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(288 |
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452 |
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Accounts payable and accrued liabilities |
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(3,423 |
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6,086 |
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Net cash used in operating activities |
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(15,065 |
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(15,188 |
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Investing activities |
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Capital expenditures |
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(997 |
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(519 |
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Proceeds from sale of property, plant and equipment |
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17 |
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Net cash used in investing activities |
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(980 |
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(519 |
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Financing activities |
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Issuance of long-term debt |
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15,694 |
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14,970 |
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Repayment of long-term debt |
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(18 |
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Net cash provided by financing activities |
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15,676 |
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14,970 |
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Net decrease in cash |
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(369 |
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(737 |
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Cash at beginning of year |
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1,892 |
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1,489 |
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Cash at end of year |
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$ |
1,523 |
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$ |
752 |
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Supplemental disclosures of cash flow information |
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Non-cash activities |
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Deferred compensation |
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$ |
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$ |
247 |
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See Notes to Condensed Consolidated Financial Statements.
6
VIRCO MFG. CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2007
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three months
ended April 30, 2007, are not necessarily indicative of the results that may be
expected for the year ending January 31, 2008. The balance sheet at January 31,
2007 has been derived from the audited financial statements at that date, but
does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Companys annual report on
Form 10-K for the year ended January 31, 2007.
Note 2. Seasonality
The market for educational furniture is marked by extreme seasonality, with
over 50% of the Companys total sales typically occurring from June to
September each year, which is the Companys peak season. Hence, the Company
typically builds and carries significant amounts of inventory during and in
anticipation of this peak summer season to facilitate the rapid delivery
requirements of customers in the educational market. This requires a large
up-front investment in inventory, labor, storage and related costs as inventory
is built in anticipation of peak sales during the summer months. As the capital
required for this build-up generally exceeds cash available from operations,
the Company has historically relied on third-party bank financing to meet cash
flow requirements during the build-up period immediately preceding the peak
season.
In addition, the Company typically is faced with a large balance of accounts
receivable during the peak season. This occurs for two primary reasons. First,
accounts receivable balances typically increase during the peak season as
shipments of products increase. Second, many customers during this period are
government institutions, which tend to pay accounts receivable more slowly than
commercial customers.
The Companys working capital requirements during and in anticipation of the
peak summer season require management to make estimates and judgments that
affect assets, liabilities, revenues and expenses, and related contingent
assets and liabilities. On an on-going basis, management evaluates its
estimates, including those related to market demand, labor costs, and stocking
inventory.
Note 3. New Accounting Standards
In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements
(SFAS 157) which provides enhanced guidance for using fair value to measure
assets and liabilities. SFAS 157 also expands the amount of disclosure
regarding the extent to which companies measure assets and liabilities at fair
value, the information used to measure fair value, and the effect of fair value
measurements on earnings. The standard applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value but does not
expand the use of fair value in any new circumstances. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company
does not anticipate any material impact to its financial statements from the
adoption of this standard.
In October 2006, the FASB ratified EITF 06-4, Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements. This statement is effective for years beginning
after December 15, 2007. This statement clarifies that FASB 106, Employers
Accounting for Post-Retirement Benefits other than Pensions, applies to
endorsement split-dollar life insurance arrangements. The Company estimates
that adoption of this statement will increase the Companys recorded
liabilities by approximately $2,000,000 with no impact to the statement of
operations or cash flows of the Company . The Company has purchased life
insurance policies that are designed to pay a death benefit that is greater
than the promised retirement benefit.
7
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159) which permits entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. The
objective of SFAS 159 is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This statement is effective as of the
beginning of any fiscal year beginning after November 15, 2007. The Company
does not anticipate any material impact to its financial statements from the
adoption of this standard.
Note 4. Inventories
Fiscal year end financial statements at January 31, 2007 reflect inventories
verified by physical counts with the material content valued by the LIFO
method. At April 30, 2007 and 2006, there were no physical verifications of
inventory quantities. Cost of sales is recorded at current cost. The effect of
penetrating LIFO layers is not recorded at interim dates unless the reduction
in inventory is expected to be permanent. No such adjustments have been made
for the periods ended April 30, 2007 and 2006. LIFO reserves at April 30, 2007,
January 31, 2007 and April 30, 2006 were $7,357,000, $7,357,000 and $6,423,000,
respectively. Management continually monitors production costs, material costs
and inventory levels to determine that interim inventories are fairly stated.
Note 5. Debt
The Company has entered into a revolving credit facility with Wells Fargo Bank,
which was amended and restated in March and April 2007, and which provides a
term loan of $20,000,000 and a secured revolving line of credit that varies as
a percentage of inventory and receivables, up to a maximum of $40,000,000, with
the maximum increasing to $50,000,000 during certain months of the year. The
amended agreement, which is effective March 2007, extended the maturity date
from February 15, 2008 to February 15, 2009. The term note is a two-year loan,
amortizing at $10,000,000 per year with interest payable monthly at a
fluctuating rate equal to the Wells Fargo Banks prime rate (8.25% at April 30,
2007) plus a 0.5% margin.
The amendment extended the maturity date of the revolving line from February
15, 2008 to February 15, 2009 with interest payable monthly at a fluctuating
rate equal to the Wells Fargo Banks prime rate plus a fluctuating margin
similar to the term note. The revolving line typically provides for advances of
80% on eligible accounts receivable and 20% 60% on eligible inventory. The
advance rates fluctuate depending on the time of the year and the types of
assets. The agreement has an unused commitment fee of 0.375%. Approximately
$25,691,000 was available for borrowing as of April 30, 2007.
The credit facility with Wells Fargo Bank is subject to various financial
covenants including a liquidity requirement, a leverage requirement, a cash
flow coverage requirement and profitability requirements. The agreement also
places certain restrictions on capital expenditures, new operating leases,
dividends and the repurchase of the Companys common stock. The revolving
credit facility is secured by the Companys accounts receivable, inventories,
equipment and property. The Company is in compliance with its covenants at
April 30, 2007.
Note 6. Income Taxes
On February 1, 2007, the Company adopted the provisions of FIN No. 48. As a
result of the implementation of FIN No. 48, the Company recognized no material
adjustment to the liability for unrecognized income tax benefits. At the
adoption date of February 1, 2007, the Company had approximately $760,000 of
unrecognized tax benefits. At April 30, 2007, the Company had approximately
$760,000 of unrecognized tax benefits all of which would impact the effective
tax rate if recognized. The Company estimates that no unrecognized tax
benefits will decrease in the next twelve months due to the expiration of
statute of limitations and completion of audits in progress. The Company
records interest and penalties on uncertain tax positions to income tax
expense. As of February 1, 2007 and April 30, 2007, the Company has accrued
$164,000 of interest and $134,000 of penalties related to uncertain tax
positions. The tax years 2004 to 2006 remain open to examination by the IRS
for federal income taxes. The tax years 2003 to 2006 remain open for major
state taxing jurisdictions. The Company is not being audited by a major taxing
jurisdiction at April 30, 2007.
8
At January 31, 2007, the Company had net operating losses that can potentially
be carried forward for federal and state income tax purposes, expiring at
various dates through 2027 if not utilized. Federal net operating losses that
can potentially be carried forward total approximately $15,409,000 at January
31, 2007. State net operating losses that can potentially be carried forward
total approximately $32,791,000 at January 31, 2007. Net operating losses
carried forward will be utilized to offset taxable income realized for the
three months ended April 30, 2007.
Note 7. Net Income / (Loss) per Share
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
4/30/2007 |
|
4/30/2006 |
|
|
(In thousands, except per share data) |
Numerators: |
|
|
|
|
|
|
|
|
Numerator for both basic and diluted net loss per share |
|
$ |
(2,980 |
) |
|
$ |
(3,267 |
) |
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
14,380 |
|
|
|
13,137 |
|
Denominator for basic net loss per share
weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
Potentially dilutive shares from stock option plans |
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net loss per share |
|
|
14,380 |
|
|
|
13,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic |
|
$ |
(0.21 |
) |
|
$ |
(0.25 |
) |
Certain exercisable and non-exercisable stock options were not included in the computation of diluted net loss per share
at April 30, 2007 and 2006, because their inclusion would have been anti-dilutive. The number of stock options
outstanding, which met this anti-dilutive criterion for the three months ended April 30, 2007 and 2006, was 148,000 and
68,000, respectively.
Note 8. Stock Based Compensation
The Companys two stock plans are the 1997 Employee Incentive Plan (the 1997 Plan) and the 1993
Employee Incentive Stock Plan (the 1993 Plan). Under the 1993 Plan, the Company was permitted to
grant an aggregate of 707,384 shares (as adjusted for stock splits and stock dividends) to its
employees and directors in the form of stock options. The 1993 Plan expired in 2003 and had no
unexercised options outstanding at April 30, 2007. Under the 1997 Plan, the Company may grant an
aggregate of 724,729 shares (as adjusted for stock splits and stock dividends) to its employees and
directors in the form of stock options or awards. As of April 30, 2007, the 1997 Plan had 234,594
unexercised options outstanding and 109,262 shares remain available for future grant. Options
granted under the plans have an exercise price equal to the market price at the date of grant, have
a maximum term of 10 years and generally become exercisable ratably over a five-year period. The
Company did not grant any stock based compensation during the three months ended April 30, 2007.
The shares of common stock issued upon exercise of a previously granted stock option are considered
new issuances from shares reserved for issuance upon adoption of the various plans. While the
Company does not have a formal written policy detailing such issuance, it requires that the option
holders provides a written notice of exercise to the stock plan administrator and payment for the
shares prior to issuance of the shares.
Accounting for the Plans
Effective February 1, 2006 the Company adopted the fair value recognition provisions of FASB
Statement No. 123(R), Share-Based Payment, using the modified prospective-transition method. The
modified prospective-transition method was applied to those unvested options issued prior to the
Companys adoption that have historically been accounted for under the Intrinsic Value Method. All
outstanding options were 100% vested prior to the adoption and no options were granted since the
adoption of FASB Statement No. 123(R). Accordingly, no compensation expense was recorded on the
Companys options during the three months ended April 30, 2007 or April 30, 2006.
9
Restricted Stock Unit Awards
On June 30, 2004, the Company granted a total of 270,000 restricted stock units, with an estimated
fair value of $6.92 per unit and exercise price of $0.01 per unit, to eligible employees under the
1997 Plan. Interests in such restricted stock units vest ratably over five years, with such units
vesting 20% at each anniversary date. At such time that the restricted stock units vest, they
become exchangeable for shares of common stock. Compensation expense is recognized based on the
estimated fair value of restricted stock units and vesting provisions. Compensation expense
incurred in connection with this award for the three months ended April 30, 2007 and 2006 was
$110,000 and $88,000, respectively. As of April 30, 2007, there was approximately $772,000 of
unrecognized compensation cost related to non-vested restricted stock unit awards. Unrecognized
compensation cost is expected to be recognized through June 2009.
On January 13, 2006, the Company granted a total of 73,881 restricted stock units, with an
estimated fair value of $5.21 per unit and exercise price of $0.01 per unit, to non-employee
directors under the 1997 Plan. Participants vest their interest in notional stock units ratably
over the vesting period, with such units being 100% vested at July 5, 2006. Compensation expense is
recognized based on the estimated fair value of restricted stock units and vesting provisions. For
the quarter ended April 30, 2006, compensation expense incurred in connection with this award was
$206,000. As of April 30, 2007, there was no unrecognized compensation cost related to these
Awards.
As the compensation cost for the restricted stock units was measured using the estimated fair value
on the date of grant and recognized over the vesting period, there was no effect on the statements
of operations, due to the adoption of FASB Statement No. 123(R). At February 1, 2006, the Company
recorded a transitional reclassification of $247,000 from current liabilities to additional paid-in
capital.
Stockholders Rights
On October 15, 1996, the Board of Directors declared a dividend of one preferred stock purchase
right (the Rights) for each outstanding share of the Companys common stock. Each of the Rights
entitles a stockholder to purchase for an exercise price of $50.00 ($20.70, as adjusted for stock
splits and stock dividends), subject to adjustment, one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock of the Company, or under certain circumstances, shares of
common stock of the Company or a successor company with a market value equal to two times the
exercise price. The Rights are not exercisable, and would only become exercisable for all other
persons when any person has acquired or commences to acquire a beneficial interest of at least 20%
of the Companys outstanding common stock. The Rights have no voting privileges, and may be
redeemed by the Board of Directors at a price of $.001 per Right at any time prior to the
acquisition of a beneficial ownership of 20% of the outstanding common shares. There are 200,000
shares (483,153 shares as adjusted by stock splits and stock dividends) of Series A Junior
Participating Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. On
April 30, 2007, the Company and Mellon Investor Services LLC entered into an amendment to the
Rights Agreement governing the Rights. The amendment, among other things, extends the term of the
Rights issued under the Rights Agreement to October 25, 2016, removes the dead-hand provisions from
the Rights Agreement, and formally replaces the former Rights Agent, The Chase Manhattan Bank, with
its successor-in-interest, Mellon Investor Services LLC.
Note 9. Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended April 30, 2007 and 2006
was the same as net income (loss) reported on the statements of operations.
Accumulated comprehensive income (loss) at April 30, 2007 and 2006 and January
31, 2007 is composed of minimum pension liability adjustments.
Note 10. Retirement Plans
The Company and its subsidiaries cover all employees under a noncontributory
defined benefit retirement plan, entitled the Virco Employees Retirement Plan
(the Plan). Benefits under the Plan are based on years of service and career
average earnings. As more fully described in the Form 10-K for the period ended
January 31, 2007, benefit accruals under this plan were frozen effective
December 31, 2003.
The Company also provides a supplementary retirement plan for certain key
employees, the VIP Retirement Plan (the VIP Plan). The VIP Plan provides a
benefit of up to 50% of average compensation for the last five years in the VIP
Plan, offset by benefits earned under the Plan. As more fully described in the
Form 10-K for the period ended January 31, 2007, benefit accruals under this
plan were frozen effective December 31, 2003.
10
The Company also provides a non-qualified plan for non-employee directors of
the Company (the Non-Employee Directors Retirement Plan). The Non-Employee
Directors Retirement Plan provides a lifetime annual retirement benefit equal
to the directors annual retainer fee for the fiscal year in which the director
terminates his or her position with the Board, subject to the director
providing 10 years of service to the Company. As more fully described in the
Form 10-K for the period ended January 31, 2007, benefit accruals under this
plan were frozen effective December 31, 2003.
The net periodic pension costs for the Plan, the VIP Plan, and the Non-Employee Directors Retirement Plan for the three months each ended
April 30, 2007 and 2006 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Employee Directors |
|
|
Pension Plan |
|
VIP Retirement Plan |
|
Retirement Plan |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Service cost |
|
$ |
41 |
|
|
$ |
43 |
|
|
$ |
50 |
|
|
$ |
53 |
|
|
$ |
6 |
|
|
$ |
6 |
|
Interest cost |
|
|
345 |
|
|
|
352 |
|
|
|
90 |
|
|
|
85 |
|
|
|
7 |
|
|
|
6 |
|
Expected return on plan assets |
|
|
(224 |
) |
|
|
(246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of transition amount |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
117 |
|
|
|
117 |
|
|
|
(134 |
) |
|
|
(134 |
) |
|
|
6 |
|
|
|
22 |
|
Recognized net actuarial (Gain) or loss |
|
|
49 |
|
|
|
41 |
|
|
|
30 |
|
|
|
34 |
|
|
|
(7 |
) |
|
|
(7 |
) |
Settlement and curtailment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
319 |
|
|
$ |
298 |
|
|
$ |
36 |
|
|
$ |
38 |
|
|
$ |
12 |
|
|
$ |
27 |
|
|
|
|
Note 11. Warranty
The Company accrues an estimate of its exposure to warranty claims based upon both current and
historical product sales data and warranty costs incurred. The majority of the Companys products
sold through January 31, 2005, carry a five-year warranty. Effective February 1, 2005, the Company
extended its standard warranty period to 10 years. The Company periodically assesses the adequacy
of its recorded warranty liabilities and adjusts the amounts as necessary. The warranty liability
is included in accrued liabilities in the accompanying consolidated balance sheet.
The following is a summary of the Companys warranty claim activity for the three month periods
each ended April 30, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30, |
|
|
2007 |
|
2006 |
Beginning balance |
|
$ |
1,750 |
|
|
$ |
1,500 |
|
Provision |
|
|
345 |
|
|
|
206 |
|
Costs incurred |
|
|
(245 |
) |
|
|
(206 |
) |
Ending balance |
|
$ |
1,850 |
|
|
$ |
1,500 |
|
|
|
|
11
VIRCO MFG. CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
For the first quarter of 2007, the Company incurred a net loss of $2,980,000 on sales of $31,122,000 compared
to a net loss of $3,267,000 on sales of $34,515,000 in the same period last year.
Sales for the first quarter ended April 30, 2007 decreased by $3,393,000, a 9.8% decrease, compared to the same
period last year. Incoming orders for the same period were flat compared to the prior year. Backlog at April
30, 2007 increased by approximately 18% compared to the prior year.
Gross margin as a percentage of sales increased to 37.1% in 2007 compared to 33.3% in the prior year. Gross
margin dollars were comparable to the prior year despite a $3,393,000 reduction in sales volume. The
improvement in margin was attributable to a price increase of approximately 7%, increased sales including
service related expenses such as installation, and relatively stable material costs.
Selling, general and administrative expense for the quarter ended April 30, 2007 increased by approximately
$111,000 compared to the same period last year, and increased as a percentage of sales by 4.7%. The increase
as a percentage of sales was primarily attributable to the reduction in first quarter sales and to a larger
percentage of sales including service related expenses such as installation.
Interest expense decreased by approximately $342,000 compared to the same period last year. The decrease is
due to reduced interest rates in addition to lower loan balances.
Financial Condition
As a result of seasonally lower shipments in the first quarter compared to the fourth quarter and the first
quarter last year, accounts and notes receivable were reduced at April 30, 2007 compared to January 31, 2007
and April 30, 2006. The Company traditionally builds large quantities of inventory during the first quarter in
anticipation of seasonally high summer shipments. For the current quarter, the Company increased inventory by
approximately $15,000,000 compared to January 31, 2007. This increase in inventory was slightly less than the
increase in the first quarter in the prior year. The increase in inventory during the first quarter was
financed through the credit facility with Wells Fargo Bank.
At April 30, 2007 compared to April 30, 2006, accounts payable decreased by approximately $10,000,000 and
borrowings under the line of credit decreased by more than $10,000,000. The cumulative impact of a prior year
private placement to raise nearly $5,000,000 of capital, net income of nearly $8,000,000 during the rolling
12 months ending April 30, 2007, and depreciation in excess of capital expenditures have improved the financial
strength of the Company.
The Company has established a goal of limiting capital spending to less than $5,000,000 for 2007, which is
approximately two-thirds of anticipated depreciation expense. Capital spending for the quarter ended April 30,
2007, was $997,000 compared to $519,000 for the same period last year. Capital expenditures are being financed
through the Companys credit facility established with Wells Fargo Bank and operating cash flow.
Net cash used in operating activities for the first quarter ended April 30, 2007 was $15,065,000 compared to
$15,188,000 for the same period last year, but the composition of the operating cash flows varied
significantly. For the first quarter of 2007, the Company used approximately $10,000,000 less for seasonal
changes in trade receivables and inventory. During the same period the Company generated approximately
$10,000,000 less from changes in accounts payable.
The Company believes that cash flows from operations, together with the Companys unused borrowing capacity
with Wells Fargo Bank will be sufficient to fund the Companys debt service requirements, capital expenditures
and working capital needs for the next twelve months. Approximately $25,691,000 was available for borrowing as
of April 30, 2007.
12
Off Balance Sheet Arrangements
During the first quarter, there were no material changes in the Companys off balance sheet arrangements or
contractual obligations and commercial commitments from those disclosed in the Form 10-K for the fiscal year
ended January 31, 2007.
Critical Accounting Policies and Estimates
The
Companys critical accounting policies are outlined in its Form
10-K for fiscal year ended January 31, 2007.
Forward-Looking Statements
From time to time, including in this quarterly report, the Company or its representatives have made and may
make forward-looking statements, orally or in writing, including those contained herein. Such forward-looking
statements may be included in, without limitation, reports to stockholders, press releases, oral statements
made with the approval of an authorized executive officer of the Company and filings with the Securities and
Exchange Commission. The words or phrases anticipates, expects, will continue, believes, estimates,
projects, or similar expressions are intended to identify forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The results contemplated by the Companys forward-looking
statements are subject to certain risks and uncertainties that could cause actual results to vary materially
from anticipated results, including without limitation, material availability and cost of materials, especially
steel, availability and cost of labor, demand for the Companys products, competitive conditions affecting
selling prices and margins, capital costs and general economic conditions. Such risks and uncertainties are
discussed in more detail in the Companys Annual Report on Form 10-K for the fiscal year ended January 31,
2007.
The Companys forward-looking statements represent its judgment only on the dates such statements were made. By
making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or
unanticipated events or circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has entered into a revolving credit facility with Wells Fargo Bank, which was amended
and restated in March 2007, and which provides a term loan of $20,000,000 and a secured revolving
line of credit that varies as a percentage of inventory and receivables, up to a maximum of
$40,000,000, with the maximum increasing to $50,000,000 during certain months of the year. The
amended agreement, which is effective March 2007, extended the maturity date from February 15, 2008
to February 15, 2009. The term note is a two-year loan, amortizing at $10,000,000 per year with
interest payable monthly at a fluctuating rate equal to the Wells Fargo Banks prime rate (8.25% at
April 30, 2007) plus a 0.5% margin.
The amendment extended the maturity date of the revolving line from February 15, 2008 to February
15, 2009 with interest payable monthly at a fluctuating rate equal to the Wells Fargo Banks prime
rate plus a fluctuating margin similar to the term note. The revolving line typically provides for
advances of 80% on eligible accounts receivable and 20% 60% on eligible inventory. The advance
rates fluctuate depending on the time of the year and the types of assets. The agreement has an
unused commitment fee of 0.375%. Approximately $25,691,000 was available for borrowing as of April
30, 2007.
The revolving credit facility with Wells Fargo Bank is subject to various financial covenants
including a liquidity requirement, a leverage requirement, a cash flow coverage requirement and
profitability requirements. The agreement also places certain restrictions on capital expenditures,
new operating leases, dividends and the repurchase of the Companys common stock. The revolving
credit facility is secured by the Companys accounts receivable, inventories, equipment and
property. The Company is in compliance with its covenants at April 30, 2007.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports filed with the Securities and Exchange Commission
(the Commission) pursuant to the Securities Exchange Act of 1934 (the Exchange Act) is recorded,
processed, summarized and reported within the time periods
13
specified in the Commissions rules and forms, and that such information is accumulated and
communicated to the Companys management, including its President and Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Assessing the costs and benefits of such controls and procedures necessarily involves the exercise
of judgment by management, and such controls and procedures, by their nature, can provide only
reasonable assurance that managements objectives in establishing them will be achieved.
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including its President and Chief Executive Officer along with its Principal
Financial Officer, of the effectiveness of the design and operation of disclosure controls and
procedures as of the end of the period covered by this Annual Report pursuant to Exchange Act Rule
13a-15. Based upon the foregoing, the Companys President and Chief Executive Officer along with
the Companys Chief Financial Officer concluded that, subject to the limitations noted in this Part
I, Item 4, Vircos disclosure controls and procedures are effective in ensuring that (i)
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms and (ii) information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
Companys management, including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Internal Control Over Financial Reporting
There was no change in the Companys internal control over financial reporting during the first
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
14
PART II
VIRCO MFG. CORPORATION
OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes from risk factors as disclosed in the Form 10-K for the period
ended January 31, 2007.
Item 6. Exhibits
Exhibit 4.1 Amendment dated as of April 30, 2007 by and between the Company and Mellow Investor
Services LLC to the Rights Agreement by and between the Company and The Chase Manhattan Bank dated
as of October 18, 1996.
Exhibit 31.1 Certification of Robert A. Virtue, President, pursuant to Rules 13a-14 and 15d-14
of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 31.2 Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules 13a-14
and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15
VIRCO MFG. CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIRCO MFG. CORPORATION |
|
|
|
|
|
|
|
|
|
Date: June 8, 2007
|
|
By:
|
|
/s/ Robert E. Dose |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert E. Dose |
|
|
|
|
|
|
Vice President Finance |
|
|
16